Ross v. Citifinancial, Inc.

• Citation: 344 F.3d 458
• Decision Date: 29 August 2003
• Docket Number: No. 02-60609.,No. 02-60608.,02-60608.,02-60609.
• Parties: Susie Ross; Denita Johnson; James Curtis; Larry Pickens; Doris King; Karen Whitley; Ruby Magee; Roy Allen, Jr.; Chester Newman; Sharon White, Plaintiffs-Appellants, v. Citifinancial, Inc., a Maryland Corporation, formerly known as First Family Financial Services, Inc.; Citifinancial, Inc., a Maryland Corporation, formerly known as Commercial Credit of Mississippi; Citifinancial, Inc., a Tennessee Corporation, formerly known as Commercial Credit of Mississippi; Citifinancial Services, Inc., a Georgia Corporation; Union Security Life Insurance Company; American Security Insurance Company; Tracy Mitchell; Darla Farmer; Joe Smith, Defendants-Appellees. Denise Howard; Lena Chambers; Priscilla Chalmers; Betty Whitley; Faye Denise Logan; Carol Buseck; Kelvin Johnson; Phillip Gordon; Debbie Gordon; Alisha F. Wilson; Margaret Haymon; Wanda Allen; Monroe Hoggatt; Eugene Haymon; Eva Parker Hall, Plaintiffs-Appellants, v. Citifinancial, Inc., a Maryland Corporation, formerly known as First Family Financial Services, Inc.; Citifinancial, Inc., a Maryland Corporation, formerly known as Commercial Credit of Mississippi; Citifinancial, Inc., a Tennessee Corporation, formerly known as Commercial Credit of Mississippi; Citifinancial Services, Inc., a Georgia Corporation; Union Security Life Insurance Company; American Security Insurance Company; Tracy Mitchell; Darla Farmer; Joe Smith; John Does 1-50; Valerie Stevens, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

344 F.3d 458

Susie Ross; Denita Johnson; James Curtis; Larry Pickens; Doris King; Karen Whitley; Ruby Magee; Roy Allen, Jr.; Chester Newman; Sharon White, Plaintiffs-Appellants, v. Citifinancial, Inc., a Maryland Corporation, formerly known as First Family Financial Services, Inc.; Citifinancial, Inc., a Maryland Corporation, formerly known as Commercial Credit of Mississippi; Citifinancial, Inc., a Tennessee Corporation, formerly known as Commercial Credit of Mississippi; Citifinancial Services, Inc., a Georgia Corporation; Union Security Life Insurance Company; American Security Insurance Company; Tracy Mitchell; Darla Farmer; Joe Smith, Defendants-Appellees. Denise Howard; Lena Chambers; Priscilla Chalmers; Betty Whitley; Faye Denise Logan; Carol Buseck; Kelvin Johnson; Phillip Gordon; Debbie Gordon; Alisha F. Wilson; Margaret Haymon; Wanda Allen; Monroe Hoggatt; Eugene Haymon; Eva Parker Hall, Plaintiffs-Appellants, v. Citifinancial, Inc., a Maryland Corporation, formerly known as First Family Financial Services, Inc.; Citifinancial, Inc., a Maryland Corporation, formerly known as Commercial Credit of Mississippi; Citifinancial, Inc., a Tennessee Corporation, formerly known as Commercial Credit of Mississippi; Citifinancial Services, Inc., a Georgia Corporation; Union Security Life Insurance Company; American Security Insurance Company; Tracy Mitchell; Darla Farmer; Joe Smith; John Does 1-50; Valerie Stevens, Defendants-Appellees.

No. 02-60608.

No. 02-60609.

United States Court of Appeals, Fifth Circuit.

August 29, 2003.

COPYRIGHT MATERIAL OMITTED

Joe Nathan Tatum, Tatum & Wade, Jackson, MS, for Plaintiffs-Appellants.

Richard H. Sinkfield and Christopher J. Willis (argued), Rogers & Hardin, Atlanta, GA, Fred H. Krutz, III, Roland M. Slover, Forman, Perry, Watkins, Krutz & Tardy, Jackson, MS, for Citifinancial Inc., Citifinancial Services Inc., Mitchell, Farmer and Smith.

Walter D. Willson (argued), Kenna L. Mansfield, Jr., Wells, Marble & Hurst, Jackson, MS, for Union Sec. Life Ins. Co. and American Sec. Ins. Co.

Emerson Barney Robinson, III, Butler, Snow, O'Mara, Stevens & Cannada, Jackson, MS, for Mississippi Bankers Ass'n.

Appeals from the United States District Court for the Southern District of Mississippi.

Before SMITH, WIENER, and BARKSDALE, Circuit Judges.

RHESA HAWKINS BARKSDALE, Circuit Judge:

For these consolidated 28 U.S.C. § 1292(b) interlocutory appeals from remand-denials where diversity-jurisdiction removal was based on fraudulent joinder, at issue is whether there is arguably a reasonable basis for predicting the non-diverse defendants could be liable under Mississippi law and, therefore, not fraudulently joined. AFFIRMED; REMANDED.

I.

Plaintiffs, all Mississippi residents, entered into loan agreements with Citifinancial or its predecessors. In conjunction with those loans, Plaintiffs purchased insurance, such as credit life and property, through Union Security Life Insurance Company and American Security Insurance Company.

Plaintiffs filed actions in Mississippi state court. In addition to suing Citifinancial, American Security, and Union Security (non-resident corporations), Plaintiffs sued Citifinancial employees, who were licensed insurance agents and Mississippi residents (collectively: Individual Defendants).

Plaintiffs alleged: their insurance premiums were excessive compared to market rates; they were inflated by commissions; and their loan interest and principal were increased by including the insurance polices within the loan amounts or unnecessarily refinancing the loans. Plaintiffs claimed breach of fiduciary duty, breach of implied covenants of good faith and fair dealing, fraudulent and negligent misrepresentation and omission, civil conspiracy, negligence, and unconscionability under Mississippi law.

Along this line, where Defendants submitted evidence of Plaintiffs' loan documents, they contained signed separate disclosure statements or signed provisions on the note or security agreements, making clear that insurance was not required. These statements included: "CREDIT LIFE OR CREDIT DISABILITY INSURANCE IS NOT REQUIRED TO OBTAIN THIS LOAN"; and "Credit Life and Credit Disability Insurance are NOT REQUIRED in connection with this loan and were not a factor in the approval of this extension of credit. If you chose to obtain life insurance through Lender . . . the cost thereof is shown . . . herein and is included in the Amount Financed". Each of the remaining Plaintiffs has at least a high school education except for one, who has a ninth grade education.

In 2001, Defendants removed the actions to federal court under 28 U.S.C. § 1441, claiming diversity jurisdiction pursuant to 28 U.S.C. § 1332. To that end, Defendants claimed Individual Defendants were fraudulently joined.

The district court denied Plaintiffs' remand motions, reasoning: Individual Defendants were fraudulently joined; therefore, jurisdiction was valid under § 1332. It held most of Plaintiffs' claims time-barred under Mississippi's general three-year statute of limitations, MISS.CODE. ANN. § 15-1-49(1). For Plaintiffs' remaining claims, it concluded there was no reasonable basis for predicting Individual Defendants could be liable. Howard v. CitiFinancial, 195 F.Supp.2d 811 (S.D.Miss. 2002); Ross v. CitiFinancial, No. 5:01-CV-185BN, 2002 WL 461567 (S.D.Miss. 2002). (A number of Plaintiffs had been voluntarily dismissed or did not assert claims against Individual Defendants.)

II.

The interlocutory appeal for each action presents four issues: (1) whether the district court applied the correct standard in holding non-diverse defendants were fraudulently joined; (2) whether, under Mississippi law, an affirmative act is required to toll the statute of limitations for the claims at issue; (3) whether a party may justifiably rely on an oral representation contrary to the terms of a written contract; and (4) whether a fiduciary relationship arises in first party insurance contracts such as those at issue.

A.

Fraudulent joinder is established by showing: (1) actual fraud in pleading jurisdictional facts; or (2) inability of the defendant to establish a cause of action against the non-diverse plaintiff. Travis v. Irby, 326 F.3d 644, 647 (5th Cir.2003) (citing Griggs v. State Farm Lloyds, 181 F.3d 694, 699 (5th Cir.1999)). At issue is the standard to be applied for the second of the two means for showing fraudulent joinder.

The district court noted that the removing party has the burden of showing fraudulent joinder, but that Plaintiffs could not rest upon mere allegations in their pleadings. Rather, the court could pierce the pleadings. It concluded: "In the event the court, after resolving all disputed questions of fact and ambiguities of law in favor of the non-removing party, finds that there is `arguably a reasonable basis for predicting that the state law might impose liability on the facts involved, then there is no fraudulent joinder' and hence no basis for asserting diversity of citizenship jurisdiction". Howard, 195 F.Supp.2d at 818 (emphasis added) (citing Jernigan v. Ashland Oil, Inc., 989 F.2d 812, 815 (5th Cir.), cert. denied, 510 U.S. 868, 114 S.Ct. 192, 126 L.Ed.2d 150 (1993)); Ross, slip op. at 8 (same).

Later, however, the district court stated: "The issue before the Court is whether there is a possibility that liability could be imposed on the non-diverse Defendants/agents based on the facts of the case". Howard, 195 F.Supp.2d at 819 (emphasis added); Ross, slip op. at 9 (same). The court concluded: because Plaintiffs could not prevail on any of their claims against Individual Defendants, they were fraudulently joined. Howard, 195 F.Supp.2d at 826-27; Ross, slip op. at 35.

Plaintiffs assert that the "reasonable basis" standard is not correct; that, instead, the standard is whether "there is no possibility that plaintiff [could] establish a cause of action". Burchett v. Cargill, Inc., 48 F.3d 173, 176 (5th Cir.1995). Plaintiffs also claim the district court shifted the burden of proof and did not construe all factual disputes in their favor. They contend Defendants only refuted their allegations with allegations, and as such, Plaintiffs were not required to provide evidence to refute them — that it is only after Defendants provide evidence refuting Plaintiffs' allegations that Plaintiffs must provide evidence.

Our opinions have described the fraudulent joinder standard in various ways. Recent opinions, however, have clarified that standard. "Any argument that a gap exists between the `no possibility' and `reasonable basis' of recovery language was recently narrowed, if not closed". Travis, 326 F.3d at 648. The court must determine whether there is arguably a reasonable basis for predicting that state law might impose liability. Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 312 (5th Cir.2002). This means that there must be a reasonable possibility of recovery, not merely a theoretical one. Id.; Badon v. RJR Nabisco, Inc., 236 F.3d 282, 286 n. 4 (5th Cir.2000) (rejecting contention that theoretical possibility of recovery is enough to support no fraudulent joinder, citing "reasonable basis" standard); Griggs, 181 F.3d at 701 ("While the burden of demonstrating fraudulent joinder is a heavy one, we have never held that a particular plaintiff might possibly establish liability by the mere hypothetical possibility that such an action could exist".).

Nonetheless, the burden of persuasion on those claiming fraudulent joinder remains a heavy one. Travis, 326 F.3d at 648. Along these lines, our court has recognized the similarity between standards for Federal Rule of Civil Procedure 12(b)(6) (failure to state claim) and fraudulent joinder. Id. See Great Plains Trust, 313 F.3d at 312. The scope of the inquiry for fraudulent joinder, however, is broader than that for Rule 12(b)(6).

For fraudulent joinder vel non, it is well established that the district...